OUTLOOK '12: Europe butadiene hinges more than ever on cracker ops

28 December 2011 13:00  [Source: ICIS news]

By Nel Weddle

Butadiene goes into the making of tyresLONDON (ICIS)--The outlook for butadiene (BD)/C4s in 2012 will depend more than ever before on European cracker operations, which are still adapting to the challenges posed by the recent and ongoing ethylene capacity additions in the Middle East and Asia.

“We have to adapt to the crackers as they adapt to the new ethylene-propylene world,” said a major BD producer, adding “it's out of our control”.

Cracker operations have always been driven by ethylene – this is nothing new – but operating rates were more or less stable through the years preceding the 2008 crash.

“It's different now,” the major producer said in reference to the actions cracker operators have had to take this year in order to align production with ethylene and propylene demand and to counteract supply length.

Crackers are currently running on average between 60% and 70% of nameplate capacity, depending on location and derivative portfolio. One cracker is confirmed shut down for market reasons, while there is talk of at least two more “economic” shutdowns.

Ethylene and propylene players are not entirely convinced that operating rates will improve too significantly through the first quarter of 2012. This will continue to constrain BD supply.

From today’s perspective, 2012 looks to be starting from a fairly strong position, with cracker cutbacks, unplanned outages and Asian pre-buying ahead of the Lunar New Year supporting the outlook for Europe.

However, there are mixed views in terms of domestic European demand, but in this respect constrained BD supply will help to offset this.

The first major producer said that it had not seen any reductions in its contract offtake, even through November and December, and nominations for January and forecasts for the remaining two months of the first quarter did not suggest otherwise.

A second major producer concurred and said “domestic demand is very strong, [customers] are at contract maximum, and many postponed volumes from December into January”.

It added that spot prices for January volumes were “going up and up” and said that it would not exclude future “rollercoaster periods”, which were a key characteristic of the BD market in 2011.

Spot prices began 2011 at just under $2,000/tonne (€1,540/tonne) FOB (free on board) NWE (northwest Europe), but rose rapidly to peak just shy of $5,000/tonne in July. Currently, FOB prices are being assessed at $2,200–2,400/tonne, having reached the bottom at $1,500/tonne at the end of November.

A third major producer said it had mixed messages regarding demand levels.

Most of its customers are hopeful for a recovery in demand and do expect an improved first quarter compared with the fourth quarter of 2011, but there are uncertainties over how far and how fast this improvement will go.

One major consumer said that it expected better demand in January because of the restocking effect, but that it would be very careful for February as “normal consumption could be lower”. Further forward, it anticipated a slow, steady, step-by-step improvement in market conditions.

It, along with other BD players, has only a month-by-month view of 2012. Visibility remains very low, with the macroeconomic uncertainty continuing to cloud the view.

Butadiene Europe spot, contract prices

($1 = €0.77)

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By: Nel Weddle
+44 20 8652 3214



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